Belgravia venture switches to smaller deals

(Crain's) — An affiliate of developer Belgravia Group Ltd. that targets big busted condominium deals has lowered its sights, with two low-profile deals totaling 38 units.

Nexstep LLC is close to acquiring 20 units in a broken condo conversion project in Rogers Park near the Loyola University Chicago campus, sources say.

The $1-million-plus investment in the 25-unit building at 1412-18 W. Arthur Ave. comes about a month after Nexstep paid $5.5 million for 18 units at a busted conversion of a vintage building in Lakeview.

Nextstep, which launched last summer, hoped to make a big splash by snapping up troubled residential developments, priced up to $50 million, in Chicago and other major markets. But the venture has tempered its expectations in a bid to get deals done.

Nextstep’s first two acquisitions involve meat-and-potatoes condo conversions. Partner Greg Merdinger says the smaller deals are attractive in part because they don’t require the venture to spend time raising cash from outside investors.

And many lenders are unwilling to part with large blocks of units in high-profile projects even if the development is in foreclosure, he says.

“With the big projects, most of the banks concluded that they’re better off selling them unit-by-unit,” Mr. Merdinger says.

Nextstep’s first acquisition was 18 units in an 11-story condo conversion at 433 Briar Place, about a block west of Lake Shore Drive. The $5.5-million deal closed Aug. 31, according to property records.

Buyers had purchased 16 units in the 34-unit building, built in 1929, before the original developer, a venture that included Lincolnwood-based residential broker Nina Yefimov, was hit with a foreclosure suit in December and lost control of the project.

Nextstep bought the two- and three-bedroom units from the lender, Chicago-based North Community Bank, and is marketing them at a steep discount to previous prices. The starting price for a two-bedroom unit is $375,000, down from more than $550,000, and three-bedrooms begin at $500,000, says Alan Lev, a Nexstep partner and CEO of Belgravia.

Nextstep has sold one unit since taking over.

In the deal about a half-mile west of Loyola, Nexstep plans to fix up the units and rent them for at least three years, until the housing market recovers. The company bought the units from the original developer, a venture led by Anatoly Zarkhin, managing principal of North Side real estate firm Builders Center of Chicago.

Sources say Nextstep has agreed to pay between $1 million and $2 million for the units.

The Zarkhin venture had managed to sell only five units in the 25-unit building before the lender, Lincoln Park Savings Bank, filed a foreclosure lawsuit in April. Mr. Zarkhin declines to comment.

Nexstep also has a three-year option to buy 20 unsold units at 1004 W. Monroe St. in the West Loop for an undisclosed price. Nextstep is currently managing the property, where 15 residences have been rented and its five commercial spaces leased.